This weekend, Democrats plan to vote on their health care reform reconciliation package, which also includes student loan reform. The Student Aid and Fiscal Responsibility Act (SAFRA), which would cut billions of dollars in senseless subsidies to private student lenders, passed the House last year. As of yesterday, it has a corresponding senate counterpart, which will be included in the reconciliation bill.
Currently, the federal government gives billions of dollars to student lenders to originate loans, and then guarantees loan repayment up to 97 percent, so the lenders are essentially useless middlemen that aren’t exposed to any of the loan risk. This is corporate welfare at its finest. So in order to build opposition to the bill, both the lenders and Republicans in Congress have been borrowing a tactic from the health care debate by falsely characterizing student loan reform as a “Washington takeover” of lending.
But House Minority Leader John Boehner (R-OH) took this a step further last night, saying that student loan reform would actually “eliminate every bank in the country and all student loan lenders,” replacing them with the government:
Well, if you look at this student loan provision in there, they eliminate every bank in the country and all private student loan lenders so the government can do it instead.
This is just astoundingly wrong. On a very basic level, it could only be true if the sole thing banks did was make student loans, which is obviously not the case. The day after student loan reform passes, banks will still be there, cashing checks, taking deposits, making home loans, and on and on.
But the greater point Boehner was trying to make is that student loan reform is somehow a new expansion of government into the private economy. Sen. Mike Enzi (R-WY) echoed this sentiment yesterday, saying that student loan reform amounts to “seizing control of industries and squeezing out private competition.” But the government already provides the money for the loans and guarantees the lenders against loss, in addition to directly making millions of loans every year. So student lending is, for all intents and purposes, already a federal program.
In fact, the subsidized private program that Boehner and Enzi want to preserve is called the Federal Family Education Loan Program. By cutting the middlemen out of the process, the government will not only save billions of dollars to be used for deficit reduction, but will also have the money to increase Pell Grants and thus boost the number of college graduates. According to an analysis by CAP Senior Fellow Ulrich Boser, the boost in incomes due to student loan reform will top $100 billion.
And at the end of the day, the bill doesn’t even cut private lenders completely out of the loop, as they still would be contracted to service the loans (collect payments, etc.). But Boehner has decided that this is his week to go all out for the bankers — telling them to stand up to “punk staffers” trying to write new regulations — so it’s really not surprising that he’s willing to distort student loan reform to argue for his bank-friendly policies.
Cross-posted at The Wonk Room.